How To Qualify For Equity Release With Bad Credit

Can You Secure Equity Release Despite Bad Credit?

Yes, you certainly can.

Many are surprised to learn that obtaining an equity release scheme with a poor credit score might even be simpler than securing a traditional mortgage. 

Why so? Let’s explore the reasons behind this.

In contrast to regular mortgages, equity release doesn’t require you to make monthly repayments during your lifetime, unless you opt to and your plan permits it. 

Consequently, the affordability assessment is NOT as stringent, and your credit score isn’t as critical as it might be with other finance forms.

The equity release loan is entirely secured against your property and will be repaid upon your death or the sale of your property.

Therefore, the future saleability of your home becomes the paramount factor. Even with bad credit, you may still be eligible for equity release, although the specifics of your financial condition, such as existing debt or bankruptcies, could affect your approval. 

Seeking advice from an equity release broker can be highly beneficial as they can help you gauge whether your past credit history could potentially impact your application. 

Remember, regardless of your credit history, there’s a way for you to access the equity in your home. You just need to know where to look, and this guide aims to do precisely that. 

Which Credit Issues Are Likely to Be Accepted by Lenders?

If you’re wrestling with a poor credit score due to minor hiccups – such as a few missed payments – you’re likely still in the running for equity release.

But, the acceptance of your application largely hinges on individual lender terms and conditions. Some may require an impeccable credit history, while others are more flexible, accommodating more adverse forms of credit. 

Therefore, you’re not necessarily locked out even if your credit history has some blemishes. 

Are You Eligible for Equity Release If You Have Outstanding Debts?

Yes, you can apply for equity release even with existing debts. But, the type of debt can impact your application.

If your debts are unsecured, such as personal loans, overdrafts, car finance agreements, or credit cards, and you’re managing them effectively, they usually won’t obstruct your equity release application. 

If you’re in arrears though, some lenders may expect you to use some of the equity released to pay off the debt.

Secured debts, on the other hand, particularly those tied to your property, could complicate things. 

Since your new lifetime mortgage needs to be the only debt secured on your property, having an existing mortgage balance or secured loan might render you ineligible for equity release.

But, some lenders might allow you to use a lump sum from your equity release plan to clear any existing first or second charges. But again, this depends on the lender.

Understanding the impact of different credit issues and debts on your equity release prospects can empower you to make informed decisions.

Can You Obtain Equity Release If You Have a County Court Judgement (CCJ)?

Having a County Court Judgement (CCJ) may make securing equity release a bit challenging. This is because you’ll be considered a higher risk due to the potential for the company to impose a charging order on your property if you don’t adhere to the agreement, or possibly force a property sale to repay it.

With another party potentially having an interest in your property, you’ll typically need to clear the CCJ and settle the debt before you apply for a lifetime mortgage. 

In some instances, you may be able to use the equity you release to clear it, although this generally requires the involvement of a solicitor and may not be possible with all lenders.

What If You’ve Been Declared Bankrupt?

If you’ve been declared bankrupt, this will significantly impact your chances of qualifying for equity release. You need to be discharged from bankruptcy before a lender will consider your application.

Although bankruptcy will remain on your record even after you’ve been discharged, as long as you’ve been fully released from any debts, this shouldn’t hinder your eligibility. 

But, it’s mandatory to inform your broker and lender of any previous bankruptcies, regardless of when they occurred.

Tips to Secure Equity Release with a Poor Credit Score

Even with a shaky credit score, there are still ways to improve your chances of securing an equity release. Here are some useful tips:

• Get Your Credit Report. Access your credit report from credit reference agencies such as Experian, Equifax, and TransUnion. Check it thoroughly for any errors, and correct any inaccuracies. This can help to boost your score and give a more accurate reflection of your financial health. 

• Pay Bills on Time. Paying bills on time is one of the simplest ways to build up a positive credit history. It shows lenders that you’re reliable and less of a risk.

• Reduce Debt. Pay off as much outstanding debt as you can before applying for an equity release scheme. This will also reduce your outgoings, making it easier to meet any future repayments.

• Seek Expert Advice. Consult with a specialist adviser who deals with bad credit equity release. They can provide valuable advice tailored to your situation and help you to find the most suitable lenders.

Can You Remortgage to Release Equity If You Have Bad Credit?

If you’re considering remortgaging to release equity but you have a poor credit score, it’s important to be aware that this can be more challenging. 

Remortgaging with a traditional lender involves more stringent checks than equity release, and they may be more likely to reject your application due to bad credit.

But, each lender has different criteria, and some are more lenient than others when it comes to credit issues. 

It’s crucial to explore all options and consider seeking advice from a specialist mortgage broker who can guide you towards the lenders most likely to accept your application.

By taking a proactive approach to improving your credit and exploring all possible options, you can improve your chances of securing equity release, even if your credit history is less than ideal.

Other Options to Consider

If you’re finding it tricky to get an equity release with bad credit, you might want to consider some alternatives. One of these is a retirement interest-only mortgage (RIO).

RIO is a type of mortgage for people in retirement. With this scheme, you only pay the interest on your loan each month. 

Then, when you sell your home, move into long-term care, or pass away, the original loan is repaid.

Here are a few things to know about RIOs:

• Eligibility – You must prove you have enough income to cover the monthly interest payments, usually from your pension.

• Property Sale – Similar to equity release, a RIO also implies that your property will be sold when the loan term ends or in any of the aforementioned circumstances, to repay the original loan.

• No Negative Equity Guarantee – RIOs typically do not offer a ‘no negative equity guarantee’. This means if your property’s sale doesn’t cover the loan, your estate may have to make up the shortfall.

So, while RIOs can be a good option for some, it’s crucial to understand the terms and seek professional advice before choosing this path.

Does Equity Release Affect Your Credit Score?

When it comes to your credit score, getting an equity release won’t usually have a negative impact. If you use some of the funds to pay off other debts, it could even improve your credit situation.

But remember, providers will run a credit check as part of the equity release process. These checks will be recorded on your credit file. Multiple checks in a short space of time can cause a slight dip in your credit score.

That being said, it’s usually only a temporary drop and will recover over time, especially if you’re keeping up with repayments on any debts you have. 

It’s always wise to be aware of this when applying for equity release or any other form of borrowing. 

Key Takeaways

• Many lenders in the UK offer equity release to those with bad credit, making it potentially easier to obtain than a traditional mortgage.

• Understanding how different credit issues, from missed payments to bankruptcy, affect eligibility is essential for securing equity release.

• If traditional equity release proves challenging, alternatives such as Retirement Interest-Only Mortgages (RIOs) might be worth exploring.

• Taking simple actions like paying bills on time can enhance your credit score and improve your chances of securing equity release.

The Bottom Line: Speak with an Equity Release Advisor

In the UK, having a poor credit score isn’t the roadblock to equity release that many fear. With the right approach and knowledge, homeowners can still tap into the equity in their homes.

You don’t have to tackle the equity release process alone. It’s wise to seek help from professionals, specifically those with expertise in assisting individuals with poor credit.

An experienced bad credit equity release advisor is equipped with the knowledge and resources to find you the best deal. 

They understand the challenges you face and know which providers are more likely to accept your application.

And to make the process even simpler for you, we offer a free broker-matching service. We’ll connect you with a knowledgeable advisor who’s ready to help

All you need to do is answer a few quick questions, and we’ll do the rest. Reach out to us today and start your equity release process with confidence.